New Utah Law Lets Captives Reinsure Risks from Any Insurer
April 02, 2020
Legislation recently signed into law by Utah Governor Gary Herbert will expand the business that Utah captive insurance companies are allowed to do.
With the approval of the Utah insurance commissioner, the new measure, HB 37, will allow Utah captives to reinsure risks ceded by any other insurer. That's a significant change from prior law in which Utah captive insurance companies could only reinsure risks ceded "for the benefit of a parent, affiliate, or controlled unaffiliated business."
Utah captive insurance regulators welcomed the expansion of coverage.
"It's a fantastic opportunity that several other captive jurisdictions already allow, and we believe it to be a good fit here in Utah as well," said Travis Wegkamp, captive insurance director at the Utah Department of Insurance in Salt Lake City.
Mr. Wegkamp noted that "while normally a captive insurer could never provide an insurance product to their parent company's customers, these business owners can now partner with a traditional insurer to provide this coverage to their customers and then cede that risk to their captive as the assuming reinsurer."
The reinsurance expansion follows legislation Utah lawmakers approved in 2019 that allows captive insurance companies to move into dormancy. Going into dormancy reduces captives' capital and surplus requirements. For example, a single-parent captive that goes into dormancy only has to maintain $25,000 in capital and surplus, a fraction of the $250,000 that is normally required under Utah's captive insurance statute.
In addition, dormant captive insurance companies are not required to submit an annual audit or hold an annual meeting in the state. Dormant captives are assessed a $2,500 annual renewal fee, half of what most other captives are required to pay.
With 432 captive insurance companies at the end of 2019, Utah is one of the world's largest captive domiciles.
April 02, 2020